Question 1

Dorchester, Inc. has 7,500 shares of stock outstanding at a market price of $42 each and earnings per share of $1.80. The firm has decided to repurchase $63,000 worth of stock. What will the PE ratio be after the repurchase, all else held constant?

Accepted Answer

The answer of Dorchester, Inc. has 7,500 shares of stock...

Question 2

Plato United has 17,000 shares of stock outstanding at a price per share of $33. How many shares will be outstanding if the firm does a 5-for-4 stock split?

Accepted Answer

The answer of Plato United has 17,000 shares of stock...

Question 3

Southern Foods recently liquidated its fast food division. That unit represented 20 percent of the firm's overall market value. Prior to the liquidation, the firm's stock was selling for $43 a share, the annual dividend was steady at $1.20 per share, and there were 16,000 shares outstanding. The firm is preparing to distribute the entire liquidation proceeds to shareholders. How much will the liquidating dividend be per share?

Accepted Answer

The answer of Southern Foods recently liquidated its fast food...

Question 4

Theodore's has common stock outstanding at a price of $26 a share. The total market value of the equity is $429,000. How many shares of stock will be outstanding if the firm does a 2-for-5 reverse stock split?

Accepted Answer

The answer of Theodore's has common stock outstanding at a...

Question 5

Zacariah's Nursery has 6,000 shares of stock outstanding at a market price of $20 a share. The earnings per share are $1.54. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the firm is paying an annual cash dividend of $0.80 a share. Ignore taxes. What will the earnings per share be after the dividend is paid?

Accepted Answer

The earnings per share (EPS) is calculated based on net income and the number of shares outstanding. Paying a dividend does not affect the net income or the number of shares, so the EPS remains $1.54 after the dividend is paid.

Question 6

Cookies and More has 8,000 shares of stock outstanding at a market price of $13.60 per share. What will the price per share be after the firm declares a 10 percent stock dividend? Ignore taxes and market imperfections.

Accepted Answer

After a 10% stock dividend, the total number of shares outstanding will be 8,800 (8,000 * 1.1). The value of the shares outstanding will remain the same, so the total value of the stock will be $119,680 ($13.60 * 8,800). To find the new price per share, divide the total value by the new number of shares outstanding: $119,680 ÷ 8,800 = $13.60 ÷ 1.10 = $12.36. Therefore, the answer is choice B.

Question 7

Taylor's, Inc. stock has plummeted in value and is currently priced at $4 a share. The exchange on which the stock trades requires that the minimum stock price be $10 a share. Taylor's has decided to do a reverse stock split to avoid delisting. However, when it does this, the firm wants the stock price increased to at least twice the minimum exchange required price. Which one of the following stock split ratios is most appropriate for this situation?

Accepted Answer

Minimum reverse split ratio = ($10 × 2)/$4 = 5. The firm needs to declare a 1-for-5 reverse stock split.

Question 8

Jerri currently owns 200 shares of Alpha stock. Each share is currently worth $36. What will Jerri's investment in Alpha be worth if the company declares a 4-for-3 stock dividend?

Accepted Answer

A 4-for-3 stock dividend means that for every 3 shares owned, the shareholder will receive an additional 4 shares. In this case, Jerri currently owns 200 shares. With a 4-for-3 stock dividend, she will receive (4/3) * 200 = 266.67 additional shares.

Her new total number of shares will be 200 + 266.67 = 466.67 shares.

However, since the share price will decrease proportionately to the increase in the number of shares, the new share price will be $36 * (3/4) = $27.

Therefore, Jerri's investment in Alpha will be worth 466.67 shares * $27 = $12,599.99, which is closest to option B, $7,200 (after rounding up to the nearest hundred).

Question 9

Global Traders has common stock outstanding at a market price of $53 per share. The total market value of the firm is $6,603,800. The firm plans on liquidating one of its divisions for $548,000 in cash and distributing the proceeds to the shareholders in the form of a liquidating dividend. What will be the amount per share of that dividend?

Accepted Answer

First, we need to calculate the total value of the firm's common stock outstanding, which is:
Total market value of the firm / Market price per share = $6,603,800 / $53 = 124,554 shares.

Next, we need to subtract the cash proceeds from the liquidation of the division from the total market value of the firm, which gives us:
$6,603,800 - $548,000 = $6,055,800.

Finally, we can calculate the liquidating dividend per share by dividing the remaining value by the number of outstanding shares:
Liquidating dividend per share = Remaining value / Number of outstanding shares
= $6,055,800 / 124,554
= $48.65

Therefore, the amount per share of the liquidating dividend will be $48.65, or $4.398 rounded to the nearest hundredth, and the best choice is B.

Question 10

Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. What will the price per share be if the firm pays a $1.20 per share dividend? Ignore taxes and market imperfections.

Accepted Answer

The correct answer is A because the price per share will decrease by the amount of the dividend paid. In this case, the dividend is $1.20 per share, so the price per share will decrease by $1.20 to $17.80.

Question 11

Stellar Technologies has 48,000 shares of stock outstanding at a market price of $6 a share. Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $20 a share? Ignore any taxes or market imperfections.

Accepted Answer

The answer of Stellar Technologies has 48,000 shares of stock...

Question 12

Aaron's Nursery has 6,000 shares of stock outstanding at a market price of $20 a share. The earnings per share are $1.54. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the firm is repurchasing $4,800 worth of stock. Ignore taxes. What will the earnings per share be after the stock repurchase?

Accepted Answer

After the repurchase, the number of shares outstanding will decrease, increasing the earnings per share. Calculate the number of shares repurchased: $4,800 / $20 = 240 shares. New shares outstanding = 6,000 - 240 = 5,760 shares. New EPS = Total earnings / New shares outstanding = (6,000 * $1.54) / 5,760 = $1.604.

Question 13

Martha's Baked Goods has 15,000 shares of stock outstanding at a market price of $24.10 per share. What will the price per share be after the firm declares a 5 percent stock dividend? Ignore taxes and market imperfections.

Accepted Answer

With a 5% stock dividend, the number of outstanding shares will increase by 5% or 0.05(15,000) = 750 shares. The total number of outstanding shares will be 15,750. The total value of the shares will remain the same at $15,000 x $24.10 = $361,500. To find the new price per share, we divide the total value by the new total number of shares: $361,500 / 15,750 = $22.95 per share.

Question 14

Lester's Meat Market has 7,000 shares of stock outstanding at a price per share of $11. What will the price per share be if the firm declares a 3-for-5 reverse stock split?

Accepted Answer

In a 3-for-5 reverse stock split, every 5 shares are converted into 3 shares. This reduces the number of shares and increases the price per share proportionally. The new price per share is calculated as (5/3) * $11 = $18.33.

Question 15

Neal Fabricators just liquidated its poorest performing division and realized net proceeds from the transaction of $2.6 million. The firm has 180,000 shares of stock outstanding at a market price of $64 a share. Which one of the following is the best estimate of the stock's post-dividend price per share if the firm distributes the entire liquidation proceeds in the form of a liquidating dividend? Ignore taxes and market imperfections.

Accepted Answer

The correct answer is A. The firm's total market value before the liquidation is $11.52 million (180,000 shares x $64 per share). After the liquidation, the firm's total market value will be $14.12 million ($11.52 million + $2.6 million). The new market price per share will be $14.12 million / 180,000 shares = $78.44. However, since the firm is distributing the entire liquidation proceeds in the form of a liquidating dividend, the stock's post-dividend price per share will be $78.44 - $2.6 million / 180,000 shares = $49.56.

Question 16

Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $17 a share. Boyd Enterprises just declared a 10 percent stock dividend. How many shares will Heidi own and what will the price per share be after the dividend?

Accepted Answer

A 10% stock dividend means Heidi will receive 10% more shares, which is 40 shares (10% of 400). Her total shares will then be 440 (400 + 40). 
To calculate the new price per share, you divide the total value of the stock by the new number of shares. Her total value after the dividend is $6,680 (400 shares x $17 per share). When divided by the new number of shares (440), the new price per share is $15.45. Therefore, the correct answer is C.

Question 17

Mueller Brothers has 38,000 shares of stock outstanding at a price per share of $59. How many shares will be outstanding if the firm does a 3-for-2 stock split?

Accepted Answer

In a 3-for-2 stock split, each shareholder receives 3 shares for every 2 shares they own. Therefore, the number of shares outstanding will increase by a factor of 3/2. Calculating this: 38,000 shares * (3/2) = 57,000 shares.

Question 18

Lester's has a market value balance sheet as shown below. The firm currently has 7,500 shares of stock outstanding at a price per share of $40. Net income is $9,500.  The firm has decided to repurchase $20,000 worth of its outstanding stock. What will the firm's PE ratio be after this repurchase, all else held constant?

Accepted Answer

The answer of Lester's has a market value balance sheet...

Question 19

Haywood and More have a market value balance sheet as shown below. The firm currently has 5,000 shares of stock outstanding at a market price per share of $35.40. Net income is $9,500.  The firm has decided to spend $8,000 and pay an extra cash dividend. What will the firm's PE ratio be after this dividend is paid, all else held constant? Ignore taxes.

Accepted Answer

The answer of Haywood and More have a market value...

Question 20

Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. The firm has decided to repurchase 500 of those shares in the open market. What will the price per share be after the share repurchase is completed? Ignore taxes and market imperfections.

Accepted Answer

The price per share remains the same at $19.00 after the repurchase because the repurchase does not affect the market value per share in a perfect market without taxes or imperfections.

Quiz 14: Dividends and Dividend Policy